Merchant Innovation

Why Jet.com Says It Will Take Off

There is good news and bad news about launching with a lot of public fanfare.  

The good news is attention and awareness — and for anyone in the business of selling goods, simply having one’s name out there is half the battle. When in doubt, consumers default to what they know, and for an eCommerce startup going into the marketplace being even “somewhat known” is big.  

But the downside of being seen is being watched, closely, for any signs of any progress or regress. Most startups launch in something like stealth mode. But not if you’re Jet.com.

Jet.com’s entrance to the marketplace involved months of headlines and countless think pieces from all corners of the tech and retail press openly speculating about whether Jet.com was the great Amazon killer finally come to the market.  

After all, their CEO was the former head of the online retailer that got millions of moms (and dads) to buy diapers online. Marc Lore was the CEO of Quidsi (the parent company of Diapers.com), which was bought by Amazon.

A more perfect storyline to the Jet.com/Amazon rivalry could never have been written.

But let’s face it, Amazon killing, or even Amazon wounding at this point, is an extraordinarily  high bar for any retailer to clear. Even the biggest retailer on the planet, Walmart, is having a tough time taking on Amazon. So, for a startup less than six months old, making a meaningful dent in what is arguably the most successful retailer on earth is a pretty tall order.   

But that’s actually just fine, according the Jet’s CRO Scott Hilton, because the rate of eCommerce growth in America means that, in some sense, time is on Jet’s side.  

“There is a huge uplift in eCommerce underway in the next decade, and Jet is fulfilling what is a clear and well demonstrated need for an additional shopping method,” Hilton told PYMNTS in a recent interview. “ECommerce in the United States for 2015 will likely finish off in the $350 billion range. We think that will grow to a trillion dollars annually in 10 years.”

And that, Hilton notes, is just the tip of the iceberg. Even at the $1 trillion mark, eCommerce will still be fraction of the $4 trillion-$5 trillion spent by American consumers in the retail space today.

And with so much potential sitting untapped, Hilton says, Jet.com doesn’t have to approach this as a fight for Amazon’s slice of the retail pie so much as it has to position itself to stake its own claim of a pie that is getting bigger and bigger every year.  

“And that, at a high level, is what we are pursuing with what is a very unique value proposition. We think that, coupled with the need for something new in the commerce space is going to be the key to the our continued success,” Hilton said.

And that value proposition, Hilton said, is unique because Jet.com is a marketplace that is trying to create a scenario that might seem at first glance a bit on the utopian side for an Internet marketplace.

"The whole foundation of Jet is really different than has ever been done, because we are actively working at aligning consumer interests with the interests of the retailers and brands on the marketplace."

And while there are any number of marketplaces that make similar claims — as openly advertising a goal to burn one’s customers or retail partners is not a great long-term strategy for success — Jet.com is certainly unique in that it has put its money, in the form of its revenue stream, where its proverbial mouth is in the hopes it can just change the way customers shop, and how customers seek savings.  

The Race To the Bottom

While Jet is often written about in terms of its ability to provide customers with lower price points – the classification of Jet as a discounting site is a bit off the mark, since much of Jet’s founding premise is based on changing the pattern of discounting in the eCommerce ecosystem.

“We don’t actually lower prices on products. We leave the item pricing the same. The customer is rewarded across an overall order. What Jet is not, is a dial-down-the-price site. The whole point of the platform is to restore health and balance to eCommerce.”

A balance that is not currently present, Hilton says, because item-level pricing and discounting has set off a sort of race for the bottom that might be good for consumers, but ultimately hurts merchants.

“The really unique innovation at Jet is that in today’s world, eCommerce is about item level pricing. A company throws a product up on the Web and it is a national competition because everyone can see it nationwide, and the only way to win is to tinker with the item level price. And that becomes a not so good race to the bottom.”

Customers and retailers — in the sort of standard eCommerce discount heavy item-based pricing model — are essentially trapped in a zero-sum game over the customer’s dollars; every one the retailers gets is a -1 for the customer, and vice versa.

But, Hilton says, Jet.com is founded and premised on the notion that the zero-sum game doesn’t have to exist – and in fact retailers and customers can partner in a way where everyone gets a better value.

Building Bigger Carts For A Better eCommerce Future

“The shopping experience Jet.com built is about enabling and empowering consumers to pull costs out of the system itself while they shop. Building a bigger basket, waiving the right to return, providing their email address to merchants, choosing a less expensive payment method — these are all things that influence the cost of the basket and we’ve created a convenient way for retailers to pass a portion of those savings back to customers,” Hilton noted.

He gave the example of the customer who is getting ready to bake — and buys a food processor. Jet.com will at that point show that customer the associated products (measuring cups and such) that they can add to the order in a way that boosts its efficiency.

“The platform will serve all the measuring cups in a priority and the customer can see and pick those items that ship from the same inventory pool. Items that do that are much less expensive from the retailer perspective because the shipping cost is shared,” Hilton explained. “Our plan is to expose those customers to the underlying costs in their transactions and let them make the choices about which of them they want to pay.”

Because what Jet has seen as it has been operating over the last six months or so is “everyone doesn’t need everything in one hour. Many would rather have it ship in a few days for lower cost or build a bigger basket and save on the overall order.”

And while those savings are obviously appealing to consumers, Hilton notes they are equally appealing to retailers, who are now able to work with tools a bit more specialized than the blunt tool of discounting everything all of the time at the same rate.

“The retailer doesn’t just have to drop their price, they are empowered to build these better strategies to entice the consumer,” Hilton said.

It also helps, of course, that the contextual pricing that is offered byJet.com — which prices whole carts instead of just objects — also has the nice side effect of jamming the Web crawling programs employed by Amazon (and others) to monitor competitors’ goods pricing. Jet’s prices, being fluid and relational, are not easily crawled.

“Jet prices whole carts instead of just items, which has the nice side effect of avoiding automatic item price disruptions. Jet’s order-level savings (resulting from underlying retailer cost savings) are tailored to each unique customer’s shopping experience,” Hilton noted.

“It really stops that price race to the bottom going on in eCommerce at the item level,” Hilton noted.

What’s Next?

As Jet.com goes into the second half of its first year, Hilton says the firm remains optimistic and ambitious because they’ve seen the growth in interest among consumers and retailers continue along the right upward trajectory. He further noted that Jet’s decision to drop its membership program earlier this year — a move that left many speculating the firm was stumbling out of the gate — was actually just deemed unnecessary.

“We actually changed the model well ahead of the three-month mark. The real driver behind that change — to us the membership model isn’t part of our core innovation — the thought behind it was enabling and empowering the consumer to pull costs out of the system. But we were concerned it was too new to be a big incentive, so we employed a membership model to pass back more savings and to provide a bigger incentive.”

Hilton said early on they saw that actually the basket building incentive stood on its own — and that the extra savings weren’t much of a needle-mover.

“The core benefit was there without having to have the membership model because it itself can provide a little bit of friction at the consumer level that wasn’t ultimately worth it.”

The goal going forward, he said, is growth, with 1,100 retailers today and hundreds more being added a month.

“We will more than triple our assortment through 2016 — with more to buy from more retailers,” Hilton noted.

Jet will also continue to look for ways to make it easier for retailers to leverage Jet.com to offer a customized shopping experience for its visitors. In the near future that will entail a payment method discount, wherein customers get a slight discount for using (cheaper) debit cards as opposed to credit cards.

Jet.com’s CRO Scott Hilton is one of the featured speakers at Innovation Project 2016, being held March 16-17, 2016, at Harvard University. He’ll share more insights on Jet.com’s vision for reinventing retail. Click here for more information.

 

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